Resilience and uncertainties shape economic trajectory in 2023 and 2024

The nation’s economy is expected to grow by 4.6% in 2024 driven by the external sector 


RHB Research has painted a positive picture of Malaysia’s economic future, forecasting a robust GDP growth of 4.6% in 2024. 

This projection is underpinned by a combination of strong domestic factors and favourable external conditions, providing a ray of optimism amid the global economic challenges. 

Key Drivers of Growth 

RHB Research, which maintained its 4.2% GDP projection this year, anticipates the country’s economy to expand by 4.6% in 2024 driven by the external sector, with a particular focus on manufacturing and exports. 

The expected return of China’s growth is identified as a significant factor contributing to Malaysia’s trade, investment and tourism, pointing towards a mutually beneficial relationship between the two nations. 

Domestically, RHB Research said private consumption is predicted to increase, propelled by a tighter labour market. 

This positive momentum in consumer spending aligns with robust labour market conditions and an anticipated improvement in consumer sentiment. 

The report highlights the observed higher necessities and discretionary spending by households in the third quarter of 2023 (3Q23) data, indicating a positive trend that is expected to continue into the coming year. 

Upside Factors and Potential Risks 

While the forecast is optimistic, RHB Research acknowledges both upside factors and potential risks that could influence Malaysia’s economic trajectory. 

Major infrastructure projects, business-friendly policies and incentives in priority sectors such as technology, tourism and agriculture are identified as potential drivers for upside growth. 

On the flip side, the report notes potential dampening effects on consumer spending due to subsidy rationalisation and an upward revision in services tax. Lingering uncertainties and pending clarifications on the timing and details of fuel subsidy rationalisation could contribute to upside risks on the inflation trajectory. 

Sectoral Dynamics 

The analysis provides insights into sectoral dynamics, foreseeing a broad-based recovery across sectors. 

A more solid recovery in the manufacturing sector is expected by the first half of 2024, with export-oriented industries benefitting from the rebound in the global technology cycle. 

Additionally, domestic-oriented industries are poised for steady growth, driven by higher output in transport- and construction-related segments, along with the continuation of major infrastructure projects. 

Monetary Policy Outlook 

RHB Research expects the Overnight Policy Rate (OPR) to remain stable at 3% through the end of 2024. 

This projection is grounded in the expectation of resilient growth prospects and uncertainties in the inflationary trajectory. The report does not foresee any OPR cuts or hikes at the current juncture. 

Malaysia’s economic growth accelerated slightly to 3.3% year-on-year (YoY) in 3Q23 from 2.9% a year ago. 

However, MIDF Research said the moderate below -4% growth reflects the continued drag from weak external demand, while the sustained positive growth was anchored by the continued rise in domestic demand, thanks to growing spending activities on the back of positive job market conditions with more people getting employed. 

In addition, it noted the tourism sector recovery, with increased tourist arrivals and spending, also contributed to the growth in domestic spending. 

“Although trade surplus widened to RM18.7 billion (2Q23: RM13.9 billion), much lower (-22.7% YoY) than the surplus in 3Q last year, contributing a larger downward drag of -1.4 percentage point (ppt) to the 3Q23 growth (2Q23: -0.1ppt). 

“If we exclude the drag from external trade, the economy could’ve grown more than +4.5% YoY due to the larger contribution from domestic demand (3Q23: +4.7ppt; 2QCY23: +3ppt). 

On a quarter-to-quarter basis, Malaysia’s GDP grew robustly by 2.6% from 1.5% in 2Q23 after seasonal adjustment, marking the third straight quarter of quarterly growth and the strongest five quarters mainly attributable to higher government spending and fixed investment which offset the decline in private consumption. 

Looking at the final quarter of 2023, MIDF Research expects the growth momentum to pick up on the back of improving external demand and continued expansion in domestic demand. 

MIDF Research maintained its projection that Malaysia’s economy will grow at 4.2% for the full year 2023, despite the average growth rate standing at 3.9% in the first three quarters. 

The anticipated recovery in external trade is cited as a crucial factor, set to gain momentum from the 4Q onwards. 

Key Drivers for 2023 and Beyond 

MIDF foresees Malaysia’s economic growth picking up in the coming year, fuelled by a continued rebound in external trade. 

This resurgence is expected to be particularly driven by an increased demand for electrical and electronic products and semiconductors, as highlighted in MIDF’s thematic report. 

Furthermore, positive indicators such as employment and income growth, coupled with government cash assistance programs, are anticipated to sustain domestic spending growth in the following year. 

These factors collectively contribute to a positive economic outlook, fostering an environment conducive to economic expansion. 

While MIDF expresses optimism, it also recognises potential challenges on the horizon. The primary downside risk is identified as inflation, stemming from planned policy changes by the government. 

These changes have the potential to impact household spending, a significant factor influencing consumer sentiment. 

Navigating this delicate balance between economic growth and inflation control will be crucial for sustaining the positive trajectory. 

Additionally, MIDF outlines various external factors that pose potential threats to Malaysia’s growth outlook. 

Geopolitical and trade tensions, volatility in financial markets, a slowdown in the US economy, and the fragility of China’s economic recovery are highlighted as potential stumbling blocks. 

This article first appeared in The Malaysian Reserve weekly print edition